Larry Edelson, before he died, predicted(based on his cycle software results) that the DOEWwould top out at 31,000. Others are predicting that the DOW is about to crash because of the high rate of borrowing. To be sure, stock valuation is way above the customery P/E ratios.
Some people believe that stock market slumps are induced by massive selling. Let's see what happened during these slumps with respect to the collapse of margin debt and the accumulation of funds:
The graphic above shows the contraction of margin debt and stock prices; in this case the S&P 500.The graph shows several things:
1. Margin debt in the current cycle is very high. So, the extra money created by the FED has gone into margin debt and buying stock;
2. The last two bear markets were preceded by a dramatic contraction of margin debt.
3. The next bear market will be a big one.
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